Citigroup Inc.’s announcement yesterday of plans to eliminate 11,000 positions in units spanning equities trading to consumer banking is the latest sign of strain from a market slowdown, stiffer capital rules and weak economic growth. Lenders around the globe are likely to trim more jobs if revenue doesn’t rebound sharply next year, analysts and recruiters said.
“The knives are sharpened and ready,” said Jason Kennedy, chief executive officer of London-based search firm Kennedy Group. “These institutions are too big for the business they are generating but they are still quite bullish that the market will return by mid-2013. Unless the markets picks up, there will be more cuts in the first half.”
Bank of America Corp. and HSBC Holdings Plc said last year they would cut 30,000 jobs, and UBS AG announced in October that it would fire 10,000 workers and largely exit fixed-income trading. Banks are under pressure to cut costs as they earn returns on equity that are lower than their cost of capital.
Cuts may continue as executives look to boost stock valuations amid poor revenue growth in capital-markets businesses. Investment-banking and trading revenue at the 10 largest global firms may climb 2.8 percent this year to $148 billion, 32 percent below 2009 and 13 percent below 2010, according to data from industry analytics firm Coalition Ltd.
Industry Transition
“The financial-services industry has been, for a number of years now, in a time of transition,” and firms are positioning themselves for a different environment, Greg Fleming, president of Morgan Stanley’s brokerage and asset-management businesses, said yesterday at the Bloomberg Link Hedge Funds Summit in New York. “That’s ongoing for everyone in the industry.”
Financial firms worldwide have announced more than 300,000 job cuts since the start of 2011, according to data compiled by Bloomberg.
Wall Street firms must slash pay and headcount and shed almost a third of their trading-business assets to earn even half the returns they once made, Sanford C. Bernstein analysts wrote in November. “This implies that the industry is likely to shrink,” the analysts wrote.
Global banking return on equity, or ROE, fell to 7.6 percent in 2011 from 8.4 percent a year earlier, “well below” the 10 percent to 12 percent average cost of equity, McKinsey & Co. said in an annual review of the industry in October.
“You have to see meaningful improvement in their ROEs” before the cost-cutting can abate, said Joo-Yung Lee, head of the North American financial institutions group at Fitch Ratings.